New York Times
October 5, 2001

Senate Panel Approves Money Laundering Legislation

By Adam Clymer

WASHINGTON -- The Senate Banking Committee today unanimously approved broad legislation to combat money laundering that would require banks and other financial institutions to make a serious effort to determine the source of deposits from foreign countries.

The bill would also authorize the Treasury Department to take various actions against dubious foreign banks, including prohibiting American banks from dealing with them.

The administration had opposed legislation on this issue before the Sept. 11 terrorist attacks. But this bill moved quickly through the committee after a hard push from the chairman, Senator Paul S. Sarbanes, Democrat of Maryland.

"Terrorist attacks require major investments of time, planning, training and practice — and the financial resources to pay the bills," Mr. Sarbanes said. "Terrorism is not a penny-ante proposition, and money laundering is the transmission belt that gives terrorists the means to carry out their campaigns."

While many provisions of the bill had been discussed for years as ways to thwart organized crime and drug lords, the attacks changed the political realities. In the end, even the senior Republican on the banking panel, Senator Phil Gramm of Texas, dropped his longstanding opposition to tighter rules on offshore banking operations and voted for the bill. He said it would protect "democracy and capitalism," which he called "the crowning achievements of mankind on earth."

Senator Tom Daschle of South Dakota, the majority leader, plans to bring the measure before the full Senate next week as a part of an antiterrorism package that is all but assured of approval. The House Committee on Financial Services will take up companion legislation next week.

The White House welcomed the legislation. Claire Buchan, deputy press secretary, said, "We commend the Senate committee for coming together in a bipartisan manner to address money laundering, and we look forward to working with the full Senate and supporting the legislation."

The American Bankers Association gave the bill only a measured endorsement. Peter Blocklin, its senior federal legislative representative, said, "We're not going to oppose it." Asked whether that meant the association would support the bill, he said, "We support anything that's going to get these terrorists."

He said the association had opposed the requirement that financial institutions exercise "due diligence" about foreign customers because it was duplicative of other parts of the bill and because banks were "already doing due diligence." American banks, he said, were "sort of on the front lines."

Other major elements of the bill include:

¶Power for the federal authorities to investigate the source of foreign deposits that may be the proceeds of corruption.

¶A prohibition on American banks' dealing with certain overseas "shell" banks that have no connection to any regulated banking industry.

¶Directing the Treasury to extend to broker-dealers money laundering rules now applying to banks, and quick studies of other issues, like whether to apply the rules to investment companies and hedge funds.

¶New forfeiture provisions to seize currency being smuggled out of the United States.

¶Authority to monitor the United States activities of hawalas, the nearly paperless banks that send money back and forth between the United States and the Mideast and Asia. Senator Evan Bayh, Democrat of Indiana and the author of this amendment, said hawalas helped finance Osama bin Laden's terrorist network.

Senator Gramm and the bankers association both said the bill as passed by the committee had removed their fears that innocent people would not be able to fight in court against assett seizures.

The bill did not go far enough to satisfy Senator Charles E. Schumer of New York, who wanted to require, and not merely permit, the Treasury to forbid dealing with banks in countries where secrecy laws prevent cooperation with the F.B.I. or other United States investigative agencies. He said many of the most notorious were in small countries and had no reason to exist besides laundering money.

He complained that over the years, the Treasury Department had not acted against such institutions, and simply permitting it to act would not work.

Mr. Gramm attacked the proposal, saying he opposed "trying to say we're going to write the banking laws of other countries." Mr. Schumer withdrew the amendment when it was clear it would be defeated, saying he would try again on the Senate floor.

Copyright © 2001, New York Times Company. All rights reserved.

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